Municipal bonds remain stronger ahead of $6.6B of new volume

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Municipal bonds were stronger on Friday ahead of a more normally sized slate of sales in the coming week, led by New York and California issuers.

Ipreo estimates weekly bond volume at $6.6 billion, up from a revised total of $4.6 million the previous week, according to updated data from Thomson Reuters. The calendar is composed of $5.5 billion of negotiated deals and $1.2 billion of competitive sales.

Investors have a voracious appetite for new issues, especially in high-tax states, according to John Donaldson, director of fixed income at Haverford Trust. “The dearth of supply is not exaggerated,” he told The Bond Buyer on Friday afternoon.

“The states with higher taxes continue to see demand for income that is exempt from state income taxes,” Donaldson said. The California State University deal should see ”very strong demand,” he said.

In light of the thin supply ahead in New York, Donaldson said, those deals should see similarly strong demand, as should three upcoming deals for Texas school districts, which are all guaranteed by the triple-A-rated Texas Permanent School Fund.

“As Texas does not have a state personal income tax, it will be interesting to see if there is sufficient demand for three good-size, very similar issues in a short time frame,” he said. “Our guess is that there will be demand due to the shortage of supply for national accounts.”

Wrapping up the past week, Donaldson said the holiday mood was obvious.

“Activity this week is so thin that much of the sell side took very long weekends,” he said.

Buyside participants say demand is brisk in general, and new issues are drawing attention from cash-flush and supply-starved investors. Steady demand is already emerging during the summer reinvestment season as supply continues to be too low to push yields notably higher, Michael Pietronico, chief executive officer at Miller Tabak Asset Management, said on Friday.

“Renewed focus on trade tensions has put a bit of a chill in the air when it comes to future growth prospects for the U.S. economy, and as such fixed-income as an asset class remains an attractive destination for conservative investors,” he said.

He said he expects the week's new issues to be well received. "The prospects for outperformance of municipal bonds versus corporate bonds grows stronger with trade tariffs hitting various industries with a stroke of a pen,” he added.

Primary market
In the competitive arena, the Dormitory Authority of New York is selling $1.81 billion of state sales tax bonds in five deals on Wednesday.

The offerings consist of $497.04 million of Series 2018C Bidding Group 4 bonds; $450.44 million of Series 2018C Bidding Group 3 bonds; $408.63 million of Series 2018C Bidding Group 2 bonds; $377.02 million of Series 2018C Bidding Group 1 bonds; and $73.195 million of Series 2018D taxable bonds.The financial advisor is Public Resources.

On Tuesday, the Massachusetts School Building Authority is selling $200 million of Series 2018B subordinated dedicated sales tax revenue bonds. The financial advisor is Acacia Financial Group; the bond counsel is Mintz Levin.

The Metropolitan Atlanta Rapid Transit Authority is selling $168.25 million of Series 2018A sales tax revenue bonds on Wednesday. Financial advisors are Hilltop Securities, First Tryon Advisors and TKG & Associates; the bond counsel is Holland & Knight.

In the short-term competitive sector, Colorado is selling over $900 million of notes in two separate offerings. The state will sell $600 million of Series 2018 general fund tax and revenue anticipation notes on Thursday; the financial advisor is North Slope Capital Advisors and the bond counsel is Greenberg Traurig.

The state will also sell $310 million of Series 2018A education loan program TRANS on Tuesday; the financial advisor is Kutak Rock and the bond counsel is RBC Capital Markets.

California names dominate the week’s negotiated slate.

Morgan Stanley is expected to price the Trustees of the University of California System’s $668.74 million of Series 2018A revenue bonds and Series 2018B taxable revenue bonds on Thursday after a one-day retail order period.

Siebert Cisneros Shank & Co. is expected to price the Los Angeles Department of Airport’s $424 million of Series 2018C subordinate revenue bonds, subject to the alternative minimum tax, on Thursday.

Barclays Capital is set to price the Los Angeles County Facilities Inc.’s $301.86 million of lease revenue bonds for the Vermont Corridor County administration building on Thursday. The issue consists of Series A tax-exempts and Series B taxables.

Additionally, Citigroup is set to price Atlanta’s $279 million of Series 2018B water and wastewater revenue and refunding bonds on Tuesday.

Morgan Stanley is set to price the Maine Health and Higher Educational Facilities Authority’s $183.87 million of revenue bonds on Wednesday. The issue consists of Series 2018A tax-exempts and Series 2018B taxables.

Secondary market
Municipal bonds were stronger on Friday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell as much as one basis point in the one- to 30-year maturities.

High-grade munis were also stronger, with yields calculated on MBIS’ AAA scale falling as much as a basis point throughout the curve.

Municipals were stronger on Municipal Market Data’s AAA benchmark scale, which showed the 10-year muni general obligation yield and the 30-year muni maturity falling by two basis points.

Treasury bonds were stronger as stocks traded higher.

On Friday, the 10-year muni-to-Treasury ratio was calculated at 86.0% while the 30-year muni-to-Treasury ratio stood at 98.7%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.

Previous session's activity
The Municipal Securities Rulemaking Board reported 32,602 trades on Thursday on volume of $5.24 billion.

California, Texas and New York were the states with the most trades, with the Golden State taking 15.136% of the market, the Lone Star State taking 11.898% and the Empire State taking 10.813%.

Week's actively traded issues
Some of the most actively traded munis by type in the week ended July 6 were from Puerto Rico and West Virginia issuers, according to Markit.

In the GO bond sector, the Puerto Rico Commonwealth 8s of 2035 traded 17 times. In the revenue bond sector, the West Virginia Hospital Finance Authority 4s of 2051 traded 115 times. And in the taxable bond sector, the Puerto Rico Sales Tax Financing Corp. 6.05s of 2036 traded 21 times

Week's actively quoted issues
Puerto Rico, West Virginia and California names were among the most actively quoted bonds in the week ended July 6, according to Markit.

On the bid side, the Puerto Rico Sales Tax Financing Corp. taxable 6.05s of 2036 were quoted by 40 unique dealers. On the ask side, the West Virginia Hospital Finance Authority revenue 4s of 2051 were quoted by 211 dealers. And among two-sided quotes, the California taxable 7.625s of 2040 were quoted by 21 dealers.

Lipper: Muni bond funds saw outflows
Investors in municipal bond funds pulled back and took cash out of the funds in the latest reporting week, according to Lipper data released on Thursday.

The weekly reporters saw $189.260 million of outflows in the week ended July 4, after inflows of $421.387 million in the previous week. It was the first outflow since May 2.
Exchange traded funds reported outflows of $14.571 million, after inflows of $216.906 million in the previous week. Ex-ETFs, muni funds saw $174.689 million of outflows, after inflows of $204.481 million in the previous week.

The four-week moving average remained positive at $331.939 million, after being in the green at $426.625 million in the previous week. A moving average is an analytical tool used to smooth out price changes by filtering out fluctuations.

Long-term muni bond funds had outflows of $25.904 million in the latest week after inflows of $357.320 million in the previous week. Intermediate-term funds had inflows of $25.976 million after inflows of $84.352 million in the prior week.

National funds had outflows of $108.311 million after inflows of $426.190 million in the previous week. High-yield muni funds reported inflows of $94.315 million in the latest week, after inflows of $179.487 million the previous week.

Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Vanessa Kim at 212-803-8474 for more information.

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Primary bond market Secondary bond market Municipal bond funds State of California California State University Trustees County of Los Angeles, CA Los Angeles Department of Airports City of Atlanta, GA Massachusetts School Building Authority State of Colorado Maine Health & Higher Education Facilities Authority Commonwealth of Puerto Rico Puerto Rico Sales Tax Financing Corp (COFINA) State of New York State of Texas